Due diligence reports serve as a key source of information for investors in acquisition finance transactions, used to prepare financial models that project the performance of the target company group.  Together with the base case model, the lead arranger prepares the information memorandum for prospective investors with the information provided by the buyer’s advisor and “report provider”.

The scope of the ability of the finance parties to rely on the due diligence reports is agreed and specified in reliance letters addressed to lead arrangers for the benefit of the finance parties.

Investors prepare financial models based on the available information to project the performance of the enlarged group during the life of the facilities.  The base case model will need to project sufficient cashflow within the business to service the debt in order for the transaction to proceed.

The base case model will serve as the basis upon which lenders obtain credit approval to enter into acquisition finance transactions and against which financial covenant provisions are set.  The financial covenants give lenders a mechanism that warns them of any deterioration in the financial performance of the group.

"Base Case Model" means [the financial model including profit and loss, balance sheet and cashflow projections in agreed form relating to the Group (for these purposes assuming completion of the Acquisition) together with the written business plan in agreed form, each prepared by [ ]].

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